Emergency Business Loans: Compare Your Options

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As small-business owners know, stuff happens. Emergencies arise — whether it’s a breakdown in your IT network, busted plumbing in the office or the loss of a major customer.

Sometimes, it’s even an unexpected business opportunity that you’d be able to pounce on, if only you had the cash.

Be it crisis or possible good fortune, you’ll need to find an emergency business loan. Keep the following tips in mind as you compare financing options for emergencies:

1. Shop around

Small-business owners are notorious for latching on to the first lender they come across, as a recent report from online lending platform Lending Tree found.

A primary reason is time. As an entrepreneur, you’re busy trying to keep a company afloat and growing. Plus, an unexpected event could prompt you to take the first financing option available in hopes of dealing quickly with your small-business dilemma.

But taking the time to check out your options could save you substantial money and headaches down the road. NerdWallet curated a list of small-business loans best for business owners. All of our recommendations are based on the lender’s market scope and track record, business owners’ needs as well as rates and other factors so you can make the right financing decision.

2. Be careful about fast cash

An emergency is just the right time to go for a merchant cash advance, right? An MCA, in which you sell a portion of your future credit card receivables, is widely used and usually fast and easy. But it’s also very expensive, with APRs ranging from 70% to 350%.

Some online alternative lenders offer the speed of an MCA with, comparatively, less expense.

You can get approved for some small-business loans within minutes nowadays and get the money you need in a day or two. This makes short-term loans from alternative lenders an attractive option, especially for a small business dealing with a setback or an unexpected opportunity.

Kabbage, for example, can approve your loan within minutes if you give the lender access to your business data and bank accounts, according to the company. Its business lines of credit range from $2,000 to $100,000. Each loan has a term of six or 12 months, and there is no early-payment penalty.

“It’s up to you how much you want to use and when you want to use it,” Jon Parise, director of customer marketing at alternative lender Kabbage, tells NerdWallet. “Plus, you only pay fees on money you take.”

Parise says the loan helped the owner of a fitness studio deal with a sudden boost in business — one of those golden opportunities that requires an outlay of green — that meant “a lot of upfront expenses, like purchasing additional equipment, getting more insurance and taking on greater payroll demand.”

Kabbage charges a monthly loan fee based on the amount of the loan. For example, if you borrow $50,000 from a line of credit, you’d pay $6,000 in fees. “Every month, you pay back one-sixth of the total loan plus the monthly fee,” Parise says.

The APR range for a Kabbage loan could range from 24% to 99%, which makes this type of financing far more expensive than a regular bank loan, which would typically have an APR of 6% to 7%.

3. Explore getting a term loan

It typically takes longer to apply and be approved for a small-business term loan — which a borrower pays back in predetermined amounts over a set period of time, usually a year or more — especially those guaranteed by the SBA that have lower APRs.

But a common mistake of small-business owners looking for emergency financing is to assume term loans are out of the question and their only option is a short-term product like an MCA, says Sam Hodges, founder of alternative lender Funding Circle.

“In many cases, with a business that is doing well, even if there is a dip in revenue, you may be able to get a term loan,” he tells NerdWallet.

To get more information about funding options and compare them for your small business, visit NerdWallet’s small business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

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